Credit

Background

The FICO® score was first introduced in 1989 by FICO, then called Fair, Isaac, and Company. The FICO model quickly established itself as the standard credit scoring system used by the vast majority of lenders in the United States. The score allows lenders to assess the basic creditworthiness of an individual. The score is based on consumer credit files of the three national credit reporting agencies: Experian, Equifax, and TransUnion.

This model is common throughout the world, with variability on the methodology (score) and the credit bureaus (public, corporations, country-specific).

Courtesy of Upgrade.com

There are some problems to this model that have emerged in recent decades

  • Your credit evaluation requires a tremendous amount of sensitive personal information.

  • Scores are only evaluated for traditional forms of credit

  • Scores are only used to offer traditional forms of credit

  • Credit agencies are routinely hacked, creating security risks

  • Credit agencies are organized in an unhealthy oligopoly

  • The system is highly centralized

  • There is little competition in how scores are evaluated

  • Credit scores are only updated after monthly data dumps by credit bureaus

  • The system is completely unprepared for Decentralized Finance (DeFi) and does not integrate into crypto wallets or lending

One further problem exists. Any successful loan models in DeFi have required collateral to do a loan. This problem continues to hamper the growth of lending in DeFi, by preventing those with collateral access to credit.

ZORA - Zoracles On-chain Reputation Assessment

Zoracles is attempting to solve the limitation of traditional credit scores by creating a completely new type of scoring system. The ZORA Score, or the Zoracles On-chain Reputation Assessment Score.

The ZORA Score is extremely simple. It's a score calculated from dozens of "signals" derived from an ethereum wallet. Things such as the age of the wallet, how much crypto it holds, and it's transaction history are just some of the obvious signals that are similar to the traditional FICO score. However, there are many more signals embedded in the Zoracles algorithm.

How did Zoracles do this?

Zoracles has been able to accomplish this goal for several reasons.

The Ethereum (and other) blockchains function as a publically viewable ledger, which allows transaction histories to be evaluated without the need for personal information. This basically eliminates the need for credit bureaus. Transaction history can now serve as a record for evaluating credit. A wallet is only connected to an individual through access to private keys, with no personal information stored. The data available is standardized and not bound by geographical location.

Privacy tools such as zkSNARKs and the ZoKrates toolbox allow a system to be built that provides protection from revealing sensitive information, even on-chain.

zkSNARKs proved crucial to the construction of a usable system

Finally. projects like AAVE and Compound have pioneered cryptocurrency lending platforms and shown that there is a demand for crypto lending, healthy rates that attract lenders, and systems and work on the chain.

From theblockcrypto.com

What can the ZORA Score do?

We believe each account can serve as a decentralized ID by having a credit rating. Zoracles will be building a product that is useful for millions of users and easily integrate into other lending protocols. Having the ZORA Score as the standard crypto credit score will only make it more powerful for every DeFi lender that adopts it.

Lending platforms will be able to better assess credit risks, borrowers will get more competitive loans/credit, and lenders will get a better return on investments by eliminating defaults.

Furthermore, in an unprecedented step, this platform will allow borrowers to access credit without having to use any collateral. Much like an unsecured credit card.

Our algorithm was designed for simplicity but will need maximum efficacy to allow a market for credit without the need to staking your cryptocurrency as collateral. It's pretty obvious what would happen if we designed it poorly! The dreaded Sybil Attack.

In the future, the ZORA token will become critical to the ZORA Score's success.

Zora.cc - A Demonstration Site

Zora.cc is our current demonstration site for the ZORA Score. The site was created to give us quick and accurate feedback from users. Over time, the ZORA Score evaluation algorithm will be improved. Eventually, the ZORA will be integrated into the main Zoracles site.

The site offers a simple and familiar template to crypto users. Functional buttons allow you to connect your crypto wallet to the ZORA score.

Here is a prompt to connect your crypto wallet. Zoracles currently supports Metamask and WalletConnect.

After a successful connection and approval, Zoracles will calculate your score based on the current algorithm. Your score is subject to change based on changes to your wallet and changed to the algorithm. You can evaluate multiple wallets by disconnecting your current wallet and reconnecting it.

How can other DeFi projects use the ZORA Score?

DeFi projects will be able to access the ZORA Score system through Application Programming Interfaces (APIs) and through working partnerships with Zoracles. Platforms can integrate the score into their DeFi systems and use them to enhance their own DeFi products.

The ZORA Score will continue to evolve with the DeFi industry to meet the needs of our lending platform and the industry's needs.

How will the ZORA Score disrupt the credit industry?

There are some excellent advantages to the ZORA Score, especially compared to the list we started the credit section with

  • Credit evaluations are standardized and available anywhere in the world

  • You can check multiple wallets/identities and there is no personal information

  • Scores take into account your crypto wallet history

  • Scores can be used to offer products from Decentralized Finance (DeFi)

  • Your credit bureau is now the ethereum blockchain, an immutable ledger

  • Anyone can build on this credit evaluation system and use it for their lending platforms

  • The system is highly decentralized

  • Score evaluation metrics will evolve with the blockchain, becoming more sophisticated

  • Credit scores are updated instantly based on the algorithm.

  • The system is designed from the ground up to be integrated into DeFi products.

Lastly, Zoracles will be providing a model for no-collateral loans using its credit evaluation system. An industry first.

Compare that to the list we started with:

Future

Zoracles will continue to update the Zora.cc site and the algorithm based on experience, user feedback, partner feedback, and market response.

Zoracles will seek to establish partnerships with organizations that want to use our credit evaluation software (both DeFi and CeFi).

Finally, Zoracles will begin developing a no-collateral credit system once the ZORA Score is ready to deal with such a difficult task.